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SIGNIFICANCE: The official poverty rate hit 15.1% in 2010, compared with 14.3% a year earlier, as an additional 2.6 million people slipped below the poverty line (defined as four-member household income below 22,113 dollars) according to the US Census Bureau. Measured in real terms, the median annual income for a full time male worker in 2010 was almost identical with 1973. With median family household income now lower than in 1999, media and academic commentators have declared that the United States is already in the midst of an economic 'lost decade' similar to Japan after 1989.

ANALYSIS: Impacts.

With median household income down 7.1% in real terms last year relative to 1999, consumer spending depends heavily on wealthy households.

Rising poverty and stagnant middle-class incomes eventually will result in higher taxes on the wealthy, who have seen major income gains.

Government schemes, such as food stamps and tax credits, may have kept 3-5 million individuals out of poverty last year.

Due to the current fiscal austerity push, some relief measures are in jeopardy, though they prop-up spending and growth.

Poverty correlates strongly with other social problems, notably absence of health insurance, but especially unemployment. According to Census Bureau data, approximately 66% of those aged 16 and older who were out of work in 2010 were in poverty, compared with just over one-third of the overall populace in this age group. Most consumers -- particularly those under 29, who face a particularly challenging job market -- are deferring major purchases. A survey this year by advocacy group Generation Opportunity reported than three-quarters of those aged 18-29 expected to delay a major purchase or life change because of household income concerns.

Younger and lower-middle class households spend a disproportionate share of incomes, relative to the wealthy; as these two former groups experience more difficult economic circumstances, consumer spending should remain depressed. Absent major remedial policy measures, which are unlikely, these dynamics point to continued sluggish growth over at least the medium-term.

Negative trends.

The US Census Bureau surveyed 100,000 households in the 50 states and District of Columbia last year through its Current Population Survey. The findings cover three broad areas, which show negative trends:

Health insurance coverage.

The number of US residents without health insurance grew from 49 million in 2009 to 49.9 million in 2010, or 16.3% of the population. The percentage of residents with private health coverage (usually obtained through employers) has been declining since 2001, and now covers 64% of the population. Enrolment in government health insurance schemes (Medicare and Medicaid) grew in coverage from 93.2 million in 2009 to 95.0 million in 2010. Employment-based health schemes covered 169.3 million in 2010 compared with 170.8 million in 2009.

Research has conclusively demonstrated that households without health insurance, or that fear losing insurance, severely restrict discretionary spending due to concerns about health contingencies. This will weigh on consumer spending.

Poverty.

Last year witnessed the third consecutive annual rise in the poverty rate, which jumped from 12.5% in 2007 to 15.1% 2010. Although the new poverty level is 7.3 percentage points lower than when first measured in 1959, the 2010 rate is the highest since 1993 and the absolute number of people in poverty (46.2 million) is the most in 52 years. The poverty rate is the highest it has been since former President Lyndon Johnson's 'War on Poverty' in 1964-65, which added the final major elements of the present US social welfare system.

Again, increased deprivation has been skewed towards the young. Under 18s make up 24.4% of the population but 35.5% of the poor. The percentage of adults (18-64) and under 18s in poverty grew year-on-year but there was no change for the over 65s. These trends in poverty rates are consistent with, but much more negative than, the trends in the first year following the most recent three recessions. Poverty also disproportionately affects minority households, particularly blacks and Hispanics ( see UNITED STATES: Surging 'wealth gap' to hit growth - August 4, 2011).

Finally, the number of 'doubled-up households' -- with more than one family unit resident in the same property (eg, parents and grandparents) -- increased from 17.0% of the total in 2007 to 18.3% this year. The ability of young families to move back in with their parents has acted as a 'safety valve', preventing an even larger rise in the poverty rate. However, it is also contributing to reduced demand in the housing market ( see UNITED STATES: Fears of new recession are overdone - August 30, 2011).

Median household income and wages.

Median household income of 49,445 dollars last year was off 2.3% on the previous year. This means less disposable income, and capacity to invest in social capital such as education. However, households headed by people 65 and older; which are less dependent on the job market, saw income rise 5.5% between 2007-10. Moreover, households in the top income decile experienced only a 1.5% year-on-year income decline last year -- and have enjoyed strong real income growth over the past 30 years.

The number of full-time male workers fell by 6.6 million from 2007-10, and 2.8 million among women workers. Yet even for those in work, median earnings remain mired at 1978 levels, though average earnings are higher (driven up by gains at the top of the income scale).

Credit contraction effects.

This wage stagnation highlights how important borrowing (often via mortgage-equity withdrawal) was to average household consumption in the ten years before 2008. Credit allowed middle- and lower-middle class households to afford school and college fees, funded acquisition of housing, and in many cases fed discretionary spending.

Now these debts are either bankrupting households or forcing intense deleveraging. Both activities mean constrained consumer spending and reduced household resources to build up social or material capital. For example, financial obstacles to young people gaining access to university-level education are exceptionally detrimental to future income and social mobility. Census data show that a college degree is the most important attribute for income advancement; the unemployment rate among college graduates is less than half (4.3%) the overall national jobless rate (9.1%).

Privileging the elderly over the young.

The relatively generous direction of public resources towards the elderly -- a group who tend have disproportionately resilient incomes, due to government support -- comes at the price of inadequate investment in job training and education programs for the young and laid-off workers. While this is understandable in political terms (the elderly are much more likely to vote) it will extend the period of sluggish growth and deleveraging experienced by most households.

CONCLUSION: Increased poverty signals lower consumer demand. Since consumer spending is a necessary condition for US economic growth and job creation, this restrains economic recovery. While rebalancing to increase the export share of GDP and reduce consumer debt levels will eventually restore strong economic growth, this process will require at least another two years -- pointing to anaemic expansion.

UNITED STATES: Rising poverty hits consumer spending. (2011). (). Oxford: Oxford Analytica Ltd. Retrieved from http://search.proquest.com/docview/894047398?accountid=32521